Global investors with $11trn (£8trn) in assets under management have published their expectations for how banks should align their operations with net-zero emissions.
In a new report, Fidelity International, Legal and General Investment Management and 33 other investors urge banks to commit to net zero by 2050, and to publish interim targets with a primary focus on indirect emissions associated with investments, lending, and other financial services.
Setting explicit criteria for withdrawing finance from activities that are not aligned with net zero is also expected, along with the adoption of recommendations from the Task Force on Climate-related Financial Disclosures (TCFD).
Furthermore, the investors have called for board accountability for, and variable remuneration aligned with, the delivery of net-zero emissions, with financial statements that reflect a low-carbon transition.
This comes after research found that the world’s 60 biggest banks have provided $3.8tn of financing for fossil fuel companies since the Paris Agreement, despite the UN estimating that an equivalent amount of green investment is needed every year to deliver net zero.
Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IIGCC), which convened the investors, said that there is an “urgent need” for banks to take and accelerate action to support the goals of the Paris Agreement.
“The launch of this investor expectations report outlines meaningful action focused on achieving real world impact for the banking sector,” she continued.
“This is a significant opportunity for banks to play a leading role in driving the net-zero transition. With five years already elapsed since the Paris Agreement, talking the talk must be replaced with walking the walk.”
The coalition of investors has engaged with 27 of the world’s largest banks on their expectations, including Barclays, HSBC and Citigroup, with additional banks to be approached in due course.
They have also been urged to cease activities that cause emissions through deforestation and land-use change, and have been told not to rely on unproven negative emission technologies and offsets.
All 27 banks will be invited to join the investors, along with the IIGCC and the Transition Pathway Initiative, in developing a bespoke Paris alignment assessment benchmark for banks.
Bess Joffe, head of responsible investment at the Church Commissioners for England, part of the investor group, said: “This initiative is an ideal way for investors to partner with banks as we all seek to decarbonise our activities, in alignment with Paris.
“The investor expectations provide clear guidance to banks as to the steps investors want to see them take to improve their contribution to a net-zero economy and the engagement-focused approach will allow for the best ideas to be tabled.”
Image credit: iStock
Author: Chris Seekings